Archive for category: Charitable Planning

Former clients’ philanthropy has a direct impact on my family.

People willing to commit their resources to a public objective get my utmost respect. They are the highlight of my work life.

A few years back, I met a couple who were both research ophthalmologists. Both had also been diagnosed with macular degeneration. Back then, treatments were limited, and it was only a matter of time before they lost sight.

When I met them, they wanted to promote research of treatments and hopefully cures. I worked with them to endow research chairs at the top five eye research facilities. They put about $15 million of their money into these chairs.

Fast forward a decade. My dad has been fighting macular degeneration for several years. Last fall, his doctor said one eye had stopped responding to treatment. It was a depressing day.

At the beginning of this year, the doctor told them a new treatment was getting FDA approval, and they should remain hopeful.

He’s now using this new treatment, and the results are promising.

I asked the doctor where this new treatment came from.

Can you guess?

From one of the schools where my clients had endowed research work.

I can’t draw a direct line between them, but can it be a coincidence?

Sometimes when I talk with clients about giving, there’s a tension between giving now versus giving at death. There is tremendous value when donors can see the impact of their philanthropy. It often stimulates even bigger gifts at death.

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Thinking about a private foundation? First consider a donor-advised fund.

I have had a lot of experience with private foundations. During the first five years of my practice, I helped clients form more than 100 private foundations. In the following 20 years, that number probably hit 300.

A client who wants to sponsor her own scholarship program or send money to charities outside the US may need a private foundation. But I won’t form a private foundation now unless the client has had a meaningful discussion with a donor-advised fund sponsor. That’s because DAFs are likely to be more efficient.

So, what is a DAF?

It’s a giving account established at a public charity. Community foundations were pioneers in this area, but there are now more than 50 national DAF organizations. The largest ones are associated with investment firms such as Schwab, Fidelity, and Vanguard, which established tax-exempt related organizations to hold and manage grants from the accounts while the investment firms invest donated assets.

You put money into a DAF, take a charitable income tax deduction for the gift, and direct distributions to specific organizations over the years. You can create private foundation-like committees and structures, like boards, junior boards, and family councils, to engage family members in the family’s philanthropy. But you sidestep the administrative burdens of running a private foundation, such as filing annual state and federal tax returns, monitoring conflicts of interest, and worrying about the special taxes imposed on private foundations and their officers and directors.

Surprisingly, DAFs offer better tax deductions than private foundations.

A donor can only deduct a certain percentage of their adjusted gross income based on charitable donations. A private foundation donor’s deduction is limited to 30% of AGI (although, in some cases, the limit drops to 20% of AGI), while DAF donors can deduct up to 50% of AGI — or even 60% if their donation is in cash.

Forming a DAF is usually a simple process. I created mine online in about 15 minutes. If I had started a private foundation instead, I would’ve been lucky to get the foundation up and running in less than nine months.

What happens if I want to get rid of my DAF? I zero out the account by sending all the money to charities.

Getting rid of a private foundation is a substantial undertaking. It involves coordinating the IRS and your state’s taxing agency, Attorney General’s office, and secretary of state.

If you’re thinking of formalizing your charitable giving, let’s talk.

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Make sure your charitable contribution acknowledgment is complete.

The devil is most definitely in the details regarding income tax deductions for charitable contributions.

When you give more than $250 to a charity, the tax code says you cannot deduct that contribution unless the charity gives you a contemporaneous written acknowledgment for it.

The acknowledgment must contain three statements.

First, it must identify the amount of cash and a description (but not the value) of any property other than cash contributed.

Second, it must state whether the donee organization provided any goods or services in consideration, in whole or in part, for the contributions.

Third, a description and good faith estimate of the value of any goods or services provided to the donor.

It seems like three easy things to work into an acknowledgment form, but recently the tax court got nitpicky. It denied a donor’s entire deduction to a museum because the acknowledgment didn’t say explicitly that the museum hadn’t provided any goods or services in consideration of the contribution.

Talk with an experienced charitable planning attorney if you contribute significantly to charity. I’m here to help.

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Keep it. Simple.

Mark E. Powell Estate Planning Logo WHITE

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